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Stocks rallied a bit yesterday, reversing a sharp selloff from
the previous day. The Dow added 65 points. The S&P 500 ended
up a smidge and the NASDAQ finished 40 points ahead of where it
began the session. Gold fell off by almost $25…before recouping
all of its losses to end the day more or less where it began, at
$1,506 per ounce. Silver trended likewise. As did oil.

All in all, it was a relatively underwhelming day to be watching
the markets. Unless you enjoy watching paint dry, or grass grow.
Events are unfolding slowly, with sudden, largely unpredictable
bouts of “quickly.” The sailing is smooth, in other words…until
it suddenly isn’t.

As far as we can tell, it’s near impossible to time these single
day, multi-hundred point rallies and selloffs…which is why we
long ago gave up trying. Instead, we sit back, take a deep
breath, and remain as detached as practically possible from the
minute-by-minute minutiae spewing forth from the world’s
mainstream media outlets. We try to get a big picture view of
what’s happening, something that helps us sleep at night. Then we
have a nip of scotch or a glass of wine and go to bed. Easy.

So what is this “Big Picture” then? Fellow Reckoner, we’re
shocked you have to ask! Bill has been outlining his Great
Correction thesis for some time. We thought you’d have it down
pat by now. Just to recap…

The developed markets of the world are unwinding – sometimes
slowly, sometimes not – a generation-long credit buildup. Since
roughly the end of the Second World War, Americans and Europeans
have been on a rabid spending binge. At the beginning, credit
expanded more or less in step with growth in productive capacity.
The troops, returning from their various missions and adventures
abroad, flooded the workforce with productive labor. Factories
that had been put to use manufacturing things to blow other
things up, returned to building useful stuff…things like
automobiles, sink pipes and umbrellas. Production of these items
responded largely to the demand for them…as well it should.

Slowly, almost imperceptibly at first, things began to change.
The story of General Motors parallels the overall tale of the
American economy rather well.

Back in 1954 GM’s share of the American market, then the largest
auto market in the world, stood at a whopping 54%. The Detroit
giant churned out one in every two cars made. The term “rust belt
cities” had not yet been invented and places like Pittsburgh,
Detroit and Baltimore were humming along to the sounds of metal
presses and hammer on anvil. Through the ’60s and early ’70s, GM
continued to cruise along. In 1961 she sold more than half of all
the cars AND trucks in the US. Then, with the introduction of the
GTO Pontiac Tempest in 1964, Detroit’s darling set about ushering
in the era of the muscle car. But then something happened: the
energy crisis. All of a sudden people didn’t want a V8 engine in
a medium sized American body; they wanted a four-cylinder engine
in a small-sized Japanese body. GM failed to adapt to the
changing conditions of the market…as did the American economy at
large.

Manufacturing began moving offshore as cheaper labor costs drove
a competitive wedge between the new Asian producers and the
aging, union-saddled companies in the US. A continuation of that
shift through the ’80s saw GM’s market share in the US drop from
45% to 35% and, for the first time in 59 years, the company
actually reported a net loss.

More union-led entitlement shenanigans throughout the ’90s and
early ’00s, coupled with an almost unwavering commitment to
inflexibility on GM’s part, eventually drove what was once the
largest company on the planet into the arms of the US government.
A sign of the times, indeed.

Today, China is the world’s largest market for automobiles and GM
is an embarrassing shadow of its former self. And, as “Jap Junk”
and “Korean Krap” outpaced manufacturing efforts at home, the
United States itself turned from a nation of producers to a
nation of consumers. When Deng Xiaoping was telling the Chinese
masses that “to get rich is glorious,” Americans – and their
Europeans cousins – were beginning to spend more than they
earned, relying on debt to finance their increasingly extravagant
lifestyles rather than savings and productive capital formation.

The whole process accelerated with EZ money policies under
Chairman Greenspan and “the Bernank” and, by the time the Great
Recession of ’07-’08 rolled around, the Americans were neck deep
in a debt hole with nothing but a Chinese-made shovel with which
to dig themselves “out.”

And still they dig…

As we mentioned in these pages earlier in the week, so deep is
the current debt hole in the US that even if the IRS could
somehow manage to double its income tax receipts, the
federal government would still operate in the red. And that’s to
say nothing of the economically stultifying effect such an
onerous tax burden would have on the economy in general.

Today, money and power shift from the west to the east. That’s
the mega-trend playing out under our nose; the direction the
capital is flowing. Slowly but surely, the emerging markets of
the world are becoming more and more business friendly. The west,
meanwhile, is clamping down with more restrictions, tighter
regulations and the heavy hand of government on every budding
businessman’s shoulder…and wrapped around his throat.